When individuals file their taxes and realize that they owe more than they are able to pay at the time of filing, they have the option to make monthly payments through an installment agreement. Although there are penalties, interest and fees associated with such installment agreements, sometimes this is the only option that a taxpayer may have at the time to avoid further trouble with the IRS.
Before you can apply for an installment agreement, you must:
- File all required tax returns;
- Realize that you must pay a minimum of $25.00 per month; and
- Understand that your future refunds will be applied to your tax debt until it is paid in full.
You can avoid paying the fee for setting up an installment agreement if you pay the full amount you owe within 120 days. Apply online to choose this option, or call the IRS if you owe more than $25,000. If 120 days is not enough for you to pay what you owe, the following are the fees for setting up an installment agreement:
- $52 for a direct debit agreement;
- $105 for a standard agreement or payroll deduction agreement; or
- $43 if your income is below a certain level.
In order to apply for an installment agreement, you can apply online at http://www.irs.gov/individuals/article/0,,id=149373,00.html if you owe $25,000 or less in combined individual income tax, penalties and interest. You can also call the phone number that is listed on your bill or notice from the IRS, or you can mail Form 9465 (Installment Agreement Request).
If you owe more than $25,000, you will also need to complete the Form 433-F (Collection Information Statement).
If you have any questions about installment agreements, speak with your tax professional.